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Red Wings owe 32 years’ worth of cable rights fees to Detroit

Even as Detroit Red Wings owner Mike Ilitch is asking for about $150 million in state subsidies for a new hockey arena, it turns out he’s been getting a previously undisclosed public gift: His Olympia Entertainment company’s lease on Joe Louis Arena and Cobo Hall says that he needs to share 25% of all cable TV revenue for live events with the city, but he hasn’t paid a dime since 1980.

Needless to say, that could be a lot of money: Fox Sports Detroit is currently paying more than $100 million a year to televise games of the Red Wings, Tigers, and Pistons. How exactly the city’s share should be calculated, though, sounds like it’s going to be contentious: City finance staff estimated last year that Ilitch’s total delinquent debt is about $70 million; sports economist Andrew Zimbalist says it’s more like $10 million or so, since it only applies to rights to home games; and an Olympia official insisted in 2007 that it doesn’t owe squat, because Olympia itself doesn’t sell cable rights, only the teams themselves do, so nyah nyah nyah.

Whether the city will ever demand that Ilitch pay up, given that it’s in the middle of negotiations with him over a new lease for a new arena, is questionable. Detroit Mayor (and former Pistons star) Dave Bing is in the middle of a crackdown on tax delinquents, but when asked by the Detroit News about the cable TV money, he responded by email:

“During the City’s current negotiations with Olympia Entertainment regarding a lease for Joe Louis Arena, I have directed the Detroit Economic Growth Corporation (DEGC) to secure an agreement that is fair and equitable to both parties. Although our primary focus has been on developing a new lease agreement, we will take appropriate steps to collect any money that is owed to the City.

“We look forward to resolving all issues past and present in our negotiations with Olympia Entertainment.”

Reading between the lines, I’ll go out on a limb and predict that either Bing will absolve the past cable debts as part of a new deal, or Ilitch will agree to make some token payment in exchange for an equal amount of new subsidies. Meanwhile, it’s a reminder of what should be Lessons #1 and #2 of sports facility negotiations: Leases aren’t even worth the paper they’re printed on if 1) you don’t write them to be specific about who owes what and 2) you don’t remember to enforce them for 32 years.

Lol. I guess if you can monetize planned tax revenues into real bonds and hand the money off to billionaires (who often discover the actual revenues seem lower) then Detroit would be about as valid in calculating all the money owed, imagine they invested in something like Microsoft in 1980s and sold during the boom, and then telling Illitch that forgving those debts is their contribution to the new arena. Ok, ok, you owners drive a hard bargain, just the T Bill yield instead of investing in microsoft.

Interesting take. I’m curious if municipalities can hold investments like stocks and bonds? I didn’t think they could but that’s why I’m asking. Opponents would have a completely different argument they could start making if this were an option.

I doubt it’s acceptable for a city to invest in securities like that directly. Illegal, perhaps, but probably imposed by state laws which is in the same light as league owners making rules that “the public can’t actually own the team”… except for the way they did historically (Celtics) or teams we consider legacy (Packers) etc.

Interesting that Zimbalist thinks the total might be only $10m… Did he say why he believed that to be the case?

Even if the amount “attributable” to the Wings is a small percentage of the $100m Fox spends (like 1-2% for Wings’ home games only) annually, and even if that is a fairly recent contractual development, there still has to be 30 years worth of small payments (plus interest) to consider.

Even if it averages $500k annually, that’s $16m before we add interest… anyone who bought a car in the 1980’s can remember what prime plus 1% was in those days, right?